Mumbai: India is no longer part of the world’s top 10 equity markets in terms of market capitalization, with an at least 40% value erosion of stocks traded on the two main local bourses, the Bombay Stock Exchange and the National Stock Exchange.
India is down four spots, from eighth at the end of 2007 to 12th in August, an indication that the country’s stock market has suffered more than those of other countries in the wake of a credit crunch that started in the US and spread, through western Europe, to markets across Asia.
Between December and August, the country’s share of the global market capitalization has dropped from 2.98% to 2.24%.
India, however, is not the only loser among the so-called Bric (Brazil, Russia, India and China) countries. In fact, China’s share of global market capitalization has dropped even more sharply—from 7.33% to 4.79%. Russia, too, has seen its market share go down from 1.64% to 1.46%. Only Brazil has managed to increase its share in past eight months—from 2.28% to 2.58%.
Market capitalization is calculated by multiplying the number of outstanding shares of a company with its current market price. The aggregate market capitalization of a country is the sum of the individual market capitalization of listed stocks.
A Mint analysis of Bloomberg data as on 22 August on the world’s top 50 equity markets, based on the aggregate market capitalization, reveals Indian stocks experienced the sharpest rise in valuations across world markets between 2003, when the bull run started, and 2007, just before the global equity meltdown hit the country.
The bull run in India started in October 2002 when the country’s most tracked index, Sensex, was at 2,834 points. By the second week of January 2008, it rose to its lifetime high of 21,206.77. Since the beginning of 2008, Sensex has lost close to 30%. On Wednesday, it closed at 14,296.79, losing 185.43 points, or 1.28%, over its previous close.
Between December 2003 and December 2007, the aggregate market capitalization of Indian stocks went up from $280 billion to $1.8 trillion.
The share of Indian markets in the top 50 equity markets also increased sharply in this period, from less than 1% to close to 3%, even as equities rallied globally.
Over the past eight months, however, four countries—Canada, Brazil, Switzerland and Australia—have moved past India.
Analysts claim this is a temporary blip and say India’s equity market is poised to grow much faster than many other large markets.
Peter Fung, managing director of global equity derivatives at the Hong Kong branch of Deutsche Bank AG, said it is difficult to justify the slump in stock valuations in India and other Asian markets, which has been far more than that in Western markets that are home to the current financial crisis.
Some analysts say if Indian investors had opted for geographical diversification, they could have cut down losses in the current bear market.